Chinese consumer confidence at record high

08:27, May 07, 2010

Chinese consumer confidence in the first quarter hit the highest level since 2007, but people's willingness to spend was slightly reduced by high property prices, said the latest market prospects research report.

Consumer confidence hinges on local job prospects, personal finance and willingness to spend, according to experts at the China Economic Monitoring & Analysis Center affiliated to the National Bureau of Statistics (NBS) and international market researcher Nielsen Co, which jointly released the report on Thursday.

"This significant jump is largely driven by increasing confidence of consumers in central and rural areas, as well as big improvements in consumers' perception of local job markets and personal finances," said Mitch Barns, president of Nielsen Company (Greater China).

Covering more than 3,500 shoppers from cities, towns and villages, researchers reported a marked lift in optimism in Central China provinces, and a narrowing gap between different levels of the cities, and between cities and rural areas in confidence indices.

Pan Jiancheng, deputy director-general of the NBS center, said the fast growth of value-added industries in the central region and the rapid increase of migrant workers' income contributed to their growing consumption confidence.

"Boosting consumption is extremely important to ensure China's economic restructuring will succeed, and raising the consumption of people in the central and western regions is the key," Pan said.

Consumer spending has made major strides since 2008 due to favorable government policies, especially in the auto and home appliance markets.

Because of the government's subsidy programs, low-income groups which used to have lower confidence are now closer to the national average, with their confidence up 12 percentage points from the previous quarter, the report said.

Despite rising consumer confidence, people's willingness to spend has decreased. The report showed that 43 percent of consumers think now is a good time to spend, down 3 percentage points from the previous quarter.

"One hypothesis is that consumers are concerned about price increases, especially for real estate. If you are saving to buy a property, and housing prices are increasing faster than income, it logically motivates

people to save more and spend less. Concern over healthcare policies and costs also contribute to this picture," said Barns.

Property prices in 70 major cities rose 11.7 percent in March, the biggest year-on-year rise since July 2005.

"We expect consumer confidence to be stable or rise next quarter, and job prospects will continue to be favorable. The thing to watch is price inflation, especially for high visibility items like housing," said Barns.

The report showed that income is consumers' top concern, unchanged from the previous quarter's finding.